Preferential Payments in Bankruptcy

The period of time before you file bankruptcy can be just as important as the time afterwards.  For example, you plan to file bankruptcy on September 1.  You meet with your bankruptcy attorney and she asks you about any preferential payments you have made recently.  She explains that preferential payments are payments to any one creditor that totaled $600 or more in the last 90 days.

You remember that you opened a line of credit at Jumbo’s’ Fireworks on July 1 and charged $1,000.00.  Satisfied with your July 4 fireworks display, you pay off your line of credit in full on July 15.  Jumbo’s accepts your payment and is happy that, despite the rain, they have enjoyed another profitable holiday.

The U.S. Code states that a trustee may avoid (set aside) any transfer made by the debtor within 90 days before the date of the filing of the petition over $600.  This power is given to the trustee to ensure that, to the extent possible, unsecured creditors are treated “equally” in a bankruptcy.  Equality would not be achieved if Jumbo’s received full payment but your other unsecured creditors (credit card issuers, medical service providers) received nothing.

Plainly speaking, Jumbo’s may be out of luck – they could be asked to return your payment to your bankruptcy estate.  Or, the trustee could ask you for the property. Which wouldn’t work out very well in this hypothetical scenario.

CATEGORIES

New Tennessee Law Gives Advantage to Debt Buyers

A new Tennessee law went into effect on July 1 that will likely make it easier for debt buyers (succeeding creditors) to prevail in lawsuits against debtors.  Debtors had often successfully relied on the defense that a debt buyer’s written record of their debt was hearsay.  Only the records of the original creditor passed the hearsay test.  If it’s inadmissible hearsay, it’s excluded at trial.  Unless the debt buyer could produce a witness from the original creditor to testify about the records, the debtor had a great advantage.

The new law states that under certain circumstances the debt buyer’s witness will be able to testify regarding the records as if they were the records of the original creditor.  The law states that these kinds of records may now be submitted under the Tennessee Rules of Evidence business records hearsay exception.  However, records may still be excluded if they “lack trustworthiness” through some indication of shoddy preparation or suspicion of source.

See the full text of Public Chapter 186 here.

CATEGORIES

Tennessee Lemon Law Questions

Are you having problems with a car that seems to be in the shop more often than not?  You may have heard of such a car being referred to as a “lemon.”  Many states, including Tennessee, have a statute that protects owners of such cars called the Lemon Law (Tenn. Code Ann. 55-24-101 et al).

How do you determine if the Tennessee Lemon Law applies to your vehicle?  First, see if any of the following points apply in your situation:

  • The Lemon Law only applies to new cars.  If your vehicle was purchased used, you may still have certain protections available to you under the terms of a warranty.
  • The car has manufacturing defects that appear during the first year that you own the car.
  • The defects are reported to the manufacturer (or the dealership that sold the car), and they have had three opportunities to repair the defects.
  • The defects have caused your car to be out of service for 30 or more days.
  • The defects substantially impaired your use of the car.  Per the statute, this means that the car was “unreliable or unsafe for normal operation” or has a reduced resale value.

If you believe you have a case under Tennessee’s Lemon Law, contact an attorney to discuss your options.  You cannot file a lawsuit immediately – you have to follow certain steps, including sending notification to the manufacturer, keeping copies of your repair orders, and participating in arbitration.

CATEGORIES

Treasure Hunter Becomes the Hunted

Most people who file for bankruptcy do so because they have reached the decision that that time is right.  The process is voluntary and they are in the driver’s seat.  However, it is possible to be forced into bankruptcy by your creditors.  An involuntary bankruptcy may be brought pursuant to 11 USC § 303.  Three of more entities, each holding a claim against the debtor, must join in the petition.  Their claims must total at least $14,425.00.  One such example of this is modern-day treasure hunter Tommy Thompson.

In the late 1980s, Thompson raised millions to finance an exploration of a U.S. mail steamer that sunk off the coast of North Carolina in 1857.  The investment paid off:  the ship was found along with more than three tons of gold, silver, and treasure estimated to be worth between $100 – $400 million.  Some of the treasure was brought to the surface and sold to the California mint; millions more remain at the bottom of the ocean.

In the years since, investors and crew members have sought their share of the fortune.  Several lawsuits have been filed.  Thompson’s attorney admitted in court this year that no investors have been paid yet.  Thompson has failed to attend court dates for the past seven years.

A group of creditors, including a former attorney for the exploration company, filed an involuntary bankruptcy petition against Thompson’s Columbus Exploration, LLC in March of this year.  One of the large investors in the exploration, the Columbus Dispatch newspaper, has argued that the bankruptcy was orchestrated simply to avoid the appointment of a state receivership to manage the company’s finances.

Thompson has not been seen since last year.  He is allegedly living in Florida or is out at sea, depending on which source you ask.  An Ohio judge has issued an order for his arrest.

CATEGORIES

Basic Introduction to the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act, or FDCPA, is a law that prohibits debt collectors from using tactics considered to be unfair, deceptive, or abusive.

Here is a list of what a debt collector generally can and can’t do:

  • A debt collector can’t use obscene or profane language.
  • A debt collector can’t contact you before 8:00 a.m. or after 9:00 p.m.
  • A debt collector can’t contact you at work if you tell them (orally or in writing) that you are not allowed to get calls at work.
  • A debt collector can’t contact you directly if you have hired an attorney to represent you regarding the debt.
  • A debt collector can’t contact a third party to discuss your debt, but they can contact a third party to find out your address, your home phone number, or where you work.
  • Debt collectors must send you written validation of (a) the amount you owe; (b) to whom it is owed; and (c) how you may proceed if you don’t agree with the debt.  This written validation must be sent within five days of contacting you by telephone.
  • A debt collector can’t threaten you with violence or harm.
  • A debt collector can’t tell you that you will be arrested if you don’t pay your debt.
  • A debt collector can’t threaten to take or sell your property, unless it can legally be done and they actually intend to do so.
Note that some of the items on the list require you to take some action to invoke the protection.  If you have been contacted by a debt collector and believe they have violated the FDCPA, please contact us.  You may have a right to sue the collector in state or federal court, and you may be reimbursed for attorney’s fees and court costs.

CATEGORIES

Negotiating a Bankruptcy Exit Plan for Jefferson County, Alabama

I’ve posted previously about Detriot’s financial trouble, takeover by the state of Michigan, and the possibility of a Chapter 9 municipal bankruptcy.  Let’s take a look today closer to home.  Jefferson County, Alabama (home to Birmingham) filed for Chapter 9 bankruptcy protection in November, 2011.   Like Detroit, the financial crisis included an element of a local vs. state government power struggle.

Home to over 650,000 residents, the county’s bankruptcy marked the largest municipal bankruptcy in U.S. history.

The bankruptcy was filed as a result of a crisis in the county’s sewer system.  Overflowing sewage and violations of environmental regulations forced the county to borrow money for repairs.  Attempts to generate revenue to repay the debt failed.  An attempt to impose a local wage tax in March 2011 was struck down by the state legislature and the crisis intensified.  An agreement with creditors to reduce the sewer debt was denied by state lawmakers in September 2011.  By that time, the sewer debt had passed $3 billion, and with other municipal debts added the total reached $4.2 billion.

The bankruptcy has now been pending for 1 1/2 years.  A refinancing agreement between the county and most of its creditors was approved by local officials on June 4.  The lead bankruptcy attorney for the county will present the final plan to the court by June 30.

At the time of the filing, one of the largest creditors of the county, J.P. Morgan Chase, held more than $1.2 billion of the sewer debt.  The new agreement proposes that the bank give up 70% of its debt.  This concession is higher than that by other creditors under the proposed plan, and is likely due in large part to a desire to settle a pending lawsuit by the county against the bank over debt-refinancing improprieties in the early 2000s.

CATEGORIES

Minor Mistakes: From Billions to Bankrupt

Bankruptcy protection extends to people you don’t really feel that sorry for.  I recently read an article about the May bankruptcy filing by Halsey Minor.  Now that name may not sound familiar to you, but some of his business ventures will.  He was a key investor in the company now known as Google Voice and an early investor in Salesforce.com.  He founded CNET Networks Inc. in the mid-nineties and sold the company for $1.8 billion in 2008.  That’s billion with a “B” and all this by his early forties.  That’s more than enough money for most of us to live comfortably.  So how has Minor ended up in bankruptcy just five years later?

Minor’s mistep appears to have been when he turned to invest his fortunes outside the tech world.  He focused on race horses, real estate, and fine art.  These were not mere hobbies, but lavishly funded undertakings.  He purchased Carter’s Grove Plantation from Colonial Williamsburg in 2008 with plans to raise racehorses on the historic property built in the 1750s.  Now, Minor has been forced to sell off over $20 million of his art collection.  Carter’s Grove is in bankruptcy.  Sotheby’s auction house has a judgment against Minor for $6.6 million resulting from Minor’s failure to pay up after successfully bidding on artwork.

The Beverly Hills resident lists in his bankruptcy petition assets of around $50 million and debts of around $100 million.  He likely hopes this bankruptcy will proceed more smoothly than the Carter’s Grove bankruptcy, during which the trustee filed a motion to have Minor “apprehended” and brought into court following missed appearances and failure to communicate.

CATEGORIES

A June Wedding: For Better or For Wor$e

There are a number of things to discuss before a wedding.  There are the small questions:  What kind of cake will we serve?  What song will we play during our first dance?  If we invite your cousin’s wife, will she get drunk and make a scene?

Then there are the bigger questions: Where will we live?  What schools will our kids go to?  What will we do about your $50,000 student loan debt?
Considering that about 2/3 of college graduates this year will have some student loan debt, this last one is a question that needs to be dealt with sooner than later.  The average student loan debt for the Class of 2013 is $35,200.  Consider also that student loan debt is extremely difficult to discharge in bankruptcy.  While only the person who actually took out the loan (and any co-signers) will be obligated, and not a future spouse, there is no question that beginning a marriage with one person bringing significant debt can trigger stress for years to come.

Monthly student loan payments can affect a young couple’s ability to save for a down payment, afford the car they want to drive, and pay for romantic date nights.  And it’s not just student loans.  Medical bills and credit card debt can also haunt a new couple until properly dealt with.  This may be a matter of creating a budget and making better spending decisions.  More drastic measures, such as bankruptcy, may be in order.  Regardless of their perception of their financial situation, young couples should make time to discuss these issues.  After all, debt has more lasting consequences than the color of the ribbons tied around your centerpieces.

CATEGORIES

Your Student Loan Burden: Good News About Interest Rates?

Are you overwhelmed by student loan payments?  As I’ve blogged about previously, the general rule is that a person who has filed for bankruptcy will not receive a discharge of student loans.  The only way to do so is to seek a determination from the court that repayment will impose an “undue hardship.”  Proving the required factors is very difficult.

However, there may be some temporary relief on the horizon.  The rate on subsidized Stafford loans is currently set to increase to 6.8% in July.  Yesterday Senate Democrats proposed legislation that would postpone an interest rate increase on student loans for two more years.  The current 3.4% interest rate would extend into 2015.

A similar extension granted in July 2012 during the Presidential campaign cost an estimated 6 billion dollars.  This year, the President has proposed allowing the interest rates to change and respond with market conditions.  Interest rates would depend on how much it costs the government to borrow money.   This issue has created a rare alignment of red and blue.  Three Republican  Senators, including Lamar Alexander, have introduced a bill to allow the return to market-based rates.

Whatever the outcome, the debate continues about whether changes should be made with regard to student loans’ dischargeability in bankruptcy.  Take advantage of our firm’s free consultations if you have questions about your student loan debt.

 

 

CATEGORIES

Who Is Making Money Off My Bankruptcy?

A hidden multi-billion dollar industry surrounds the bankruptcy process, and it’s not the debtors who benefit.  Bankruptcy claims are sold between creditors hoping to ultimately realize a profit when or if those claims are ever paid out of assets of the debtor’s bankruptcy estate.  The transfer also allows the original entity holding the claim to be paid something now, rather than wait on the results of the case.  This transaction is known as a “Transfer of Claim” and can occur several times during the course of the case.

Each time a claim is transferred, bankruptcy court clerks must expend additional time and costs to update records and meet notification requirements.  On May 1, 2013 a new fee went into effect.  The fee of $25.00 per transfer will be paid by the creditor filing evidence of the transfer and will be used to offset the burden on court clerks.  Time will tell if this new fee will have a significant cooling effect on the claims transfer industry.

If you are currently in a bankruptcy, don’t worry: the person going through the bankruptcy will not be affected by the new fee.

CATEGORIES